It’s True: Small Businesses Create Jobs, If they Can Grow

PolitiFact dug into the statement made by House Majority Leader Eric Cantor that small businesses create 70 percent of the jobs in the United States. Citing studies by the Small Business Administration and the Bureau of Labor Statistics, PolitiFact ruled that this claim is true; small businesses do indeed create between 60 to 80 percent of new jobs.

“Small business” in this case is measured by the SBA definition of “an enterprise with fewer than 500 employees.” However, most of the businesses The Support Center works with are typically much smaller. What about the impact of smaller enterprises on job creation?

As stated by PolitiFact, 85 percent of net new jobs in the first quarter of 2011 were created by businesses with less than 500 employees. The data also reveal that businesses with fewer than 100 employees created just about 50 percent of jobs in the same quarter, and businesses with fewer than 50 employees created almost a third.

This is a significant percentage, particularly in places where most of the businesses are much smaller than 500 employees. For example, the SBA’s profile for North Carolina published in February 2011 showed that 86 percent of employer firms in the state have fewer than 20 employees. It also shows that firms with less than 100 employees accounted for 87 percent of net new jobs between 2006 and 2007.

It’s clear that small businesses play an important role in our state and national economy, but it isn’t just a matter of firm size. As Jared Bernstein explained recently in an OpEd in the New York Times, new small businesses create jobs when they can expand and become larger firms. While Bernstein’s main argument is that the role of small businesses in job creation may be overstated, he still makes an important point: public policy should not abandon small businesses. Given all the hurdles they face, a more nuanced approach to public policy can provide the support that small businesses need to grow and create the jobs this economy needs.